Global Financial Melt-Down Gathering Steam

http://www.reuters.com/article/newsOne/idUSN0927996520080915?sp=true

It appears that efforts to prevent the failure of Lehman Brothers are failing as well.  As I’ve said repeatedly, the Federal Reserve itself is bankrupt and unable to do any more bail-outs.  And I’ve also been saying that our foreign creditors will start getting cold feet when they recognize that American investments are worthless.  The liquidation of Lehman could trigger a whole daisy-chain of writedowns, leading to more failures.  The following excerpt reveals the level of desperation to avoid a global panic:

The focus on Sunday had initially been on whether talks between regulators and Wall Street’s top bankers could lead to the sale of Lehman, which until recently was the fourth-largest U.S. investment bank.

However, those talks faltered when Britain’s Barclays Plc, which had appeared to be front-runner to take over Lehman — excluding its toxic mortgage-related assets — said it had pulled out of the bidding.

That triggered expectations the investment bank is heading into bankruptcy and prompted a rare emergency trading session on Sunday to allow Wall Street dealers in the $455 trillion derivatives market to reduce their exposure to the firm.

It’s easy to predict that matters will only grow worse.  Even as this is happening, economists remain incredulous that the toxic effects of America’s trade deficit lie at the root of the problem.  So, with each passing day, another $2 billion of American wealth is drained away.  There isn’t much left and, when it’s gone, watch out!

Advertisements

5 Responses to Global Financial Melt-Down Gathering Steam

  1. Robert says:

    Pete,

    What kind of impact is this going to have on the average american? are we going to see job layoffs? what about retirement plans, pensions and 401k’s? I know the nation has been running a deficit and we have been doing so for many years, how will this effect the middle class?

  2. Pete Murphy says:

    What we’re going to see is much tighter credit in all forms. Mortgages will be harder to get. Credit cards will be harder to get and the terms will be more onerous. An example: friends just returning from a trip to Europe report that their credit cards were being rejected in many places, not because of a problem with their credit, but simply because they were Americans.

    This drying up of credit will intensify the economic slow-down and the slump in the housing market. The effects of the trade deficit and the draining of trillions of dollars from our economy were masked by foreign creditors making huge pools of money available for mortgage lending, pumping up the housing market along with construction and jobs in the housing industry. This temporarily interrupted the downward economic spiral in the U.S., but the whole scheme has now gone bust.

    What this means is falling sales, slowing profits, falling stock prices, rising unemployment and so on. Yes, we’ll see more layoffs, falling 401k balances as the market declines, fewer retirement plans and more pension funds going bust. And this could trigger a process that begins to feed on itself. A slow-down in the economy will also mean a slow-down in imports – a good thing, but for the wrong reason. This will spread the slow-down across the globe, and our foreign creditors will begin to withdraw “investments” from the U.S. economy in order to deal with their own recessions. This will further intensify the drying up of credit.

    In essence, we’ll be witnessing a sudden burst of world-wide unemployment and poverty, the very effects of global overpopulation that I’ve warned of in my book. The pyramid scheme that has kept it swept under the rug has collapsed.

    There could be a silver lining to all of this. All this pain will hasten the day that those who have been warning of the consequences of huge, perpetual trade deficits will gain the upper hand. Balanced trade will once again become a cornerstone of economic policy. If and when that happens, we’ll see an economic renaissance the likes of which hasn’t been seen in this country since WWII.

  3. […] creditors will start getting cold feet when they recognize that American investments are worthless. https://petemurphy.wordpress.com/2008/09/14/global-financial-melt-down-gathering-steam/Lehman bankruptcy hits JSE – iAfrica.comThe lehman bankruptcy would be significant for stocks like […]

  4. Khavalier says:

    So, one question I have is, what are the chances we are under foreign attack? I understand the counter that the world economy is fully integrated. But the “world economy” is a bit of a fictitious thing. If you are serious about governing the world then destroying capitalism may be a tactic.

    Recent cyber attacks in Estonia and Georgia should give us pause. The volume of short selling on AIG coupled with tweaks and manipulations of commodity prices make for an interesting scenario. Who benefits?

  5. Pete Murphy says:

    Khavalier, your outlook is a bit more cynical than mine, but I think we both arrive at the same place. You’re saying that our economic melt-down is an orchestrated campaign by our enemies. I say it’s merely the logical outcome of misguided trade policy. Either way, the end result is the same. American assets become foreign-owned and controlled. In your scenario, those assets are then intentionally destroyed to bring down America. In my scenario, those foreign owners simply shut them down and abandon them to cut their losses. The end result is the same.

    In either scenario, America has been an unwitting participant in its own demise.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: